ed ratcliffe who’ll bet on brexit battered britain...out, it’s survival of the fittest....
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CHINA DAILY | GLOBAL EDITION Monday, January 21, 2019 | 13
Luxe style ain’t what it used to beFuture of luxury brands is already here for those that adapt to how technology is changing the way people buy
In a market upswing, every-
one’s a genius. “Only when the
tide goes out,” Warren Buffett
warned his fellow investors,
“do you discover who’s been swim-
ming naked.” The upswing of the
Chinese market over the past three
decades has been so perpetual,
businesses in China seemed
immune from global turbulence.
That held true until the tide went
out for Apple, which cut its sales
forecasts for the first time in 17
years, citing the unforeseen “mag-
nitude” of the economic slowdown
in China.
But if the big West Coast tech
company is feeling the squeeze,
then Europe’s biggest luxury
brands — Louis Vuitton, Gucci,
Hermès, Burberry — must be bra-
cing themselves for a long winter.
This does not come without warn-
ing. In October, the French luxury
goods conglomerate LVMH saw its
share price decline, despite robust
sales growth overall, when the Chi-
nese showed the first signs of wan-
ing demand for high-end handbags.
Collectively, luxury stocks are down
by about 11 percent since the start
of October, wiping out some $150
billion in combined market value.
When demand wanes, supply
must shrink. In an industry shake-
out, it’s survival of the fittest. Unfor-
tunately, there are those, like me,
who would say that luxury brands
are not exactly well-known for their
operational excellence.
They have corporate headquar-
ters full of brilliant designers who
are determined to take on the fash-
ion challenge of changing consum-
er tastes, only to find the sales
organization battling against their
brilliance because it makes no
sense for the local market. Who’s
right? Who knows? But it would be
quite a miracle if it all works out for
everyone.
This sort of tug of war seems fine
for those familiar with the business
of haute couture. But it’s the sort of
nonsense that Jack Ma from Aliba-
ba doesn’t allow. In 2013, Alibaba
bought an 18 percent stake in Wei-
bo, a Chinese microblogging web-
site that is a combination of
Facebook, Reddit, and Twitter, with
a bit of YouTube and livestreaming
thrown into the mix. Alibaba’s
online shopping website (Taobao)
has since integrated with Weibo,
allowing merchants to “hang” doz-
ens if not hundreds of new items on
virtual racks. These merchants,
who in turn are followed by their
fanbase, curate pictures and stories
of their lifestyle, aesthetics, and
travel, not unlike Kim Kardashian,
Jessica Simpson, or Bethenny Fran-
kel. They explain to their fans how
to pair a style with the rest of the
wardrobe, give makeup tips, and
provide in-depth descriptions of the
stitching or detailing on apparel. At
other times, these celebrities on
Weibo talk about their feelings and
worries and their personal relation-
ship with “realness”.
A week or two before launching a
sale, Weibo celebrities closely gauge
interest in new items, such as by
posting a shot at dinner wearing a
new sweater. Fans discuss these
items on display, debating between
different styles, colors, and cuts. If a
certain color is discussed more
than expected, the brand can then
produce a larger first batch; if fans
ignore something, it may get
dropped. Thanks to Alibaba’s auto-
mated supply chain infrastructure
(Ruhan) and Chinese factories ran-
ging from a single sewing machine
in a small room off an alleyway to
world-class manufacturing site that
handle orders from Burberry and
Louis Vuitton, merchants can make
clothes in three to seven days, usu-
ally in small batches, with low mar-
ginal cost and exemplary quality.
That on-demand supply is also
met by an AI-powered chatbot,
AliMe, that Alibaba launched in
2016. Using a variety of machine-
learning techniques from semantic
comprehension, context dialogues,
knowledge graphs, data mining,
and deep learning, the chatbot
learns about products within mer-
chant webstores, is well versed in
return policies, understands deliv-
ery costs and how to change an
order or delivery destination, and
can find solutions to resolve a cus-
tomer’s inquiry and then execute
them without human intervention.
This lack of human action allowed
AliMe to shoulder more than 95
percent of customer questions on
Alibaba’s Singles Day on Nov 11,
which generated more than $30 bil-
lion in sales within a 24-hour peri-
od, surpassing Black Friday and
Cyber Monday sales in the US by a
wide margin.
“The future is already here. It’s
just not evenly distributed yet,”
wrote novelist William Gibson. In
this future of retail and branding,
European luxury brands have fallen
behind, because the new genera-
tion of consumers expects well-cu-
rated product personas across all
social media channels with sponta-
neous user engagement. Mean-
while, the squeeze of tighter
economic conditions requires an
agile supply chain that can quickly
pivot with emerging consumer
preferences. Above all, Alibaba’s
operation relies on data analytics
and advanced automation, without
human meddling in the name of
“expert judgment”. This amounts to
a radical leap for the fashion indus-
try into a new knowledge frontier.
In my book LEAP: How to Thrive
In a World When Everything Can
Be Copied, I documented how Stein-
way & Sons, the best piano maker in
the world, relied on timely craft-
manship to build pianos that Arthur
Rubinstein and Lang Lang desired.
However, Steinway saw its sales
decline from 6,000 pianos a year in
the 1960s to some 2,000 in 2012.
The company was forced to auction
off many of the historic buildings
that had once been part of the Stein-
way Village in northern Astoria,
Queens. The original campus was
reduced to one gritty red-brick fac-
tory at the end of Steinway Street.
A poignant story, perhaps. But it
doesn’t need to be this way. Through
five principles — including “leverag-
ing seismic shifts” and “experiment-
ing to gain evidence” — pioneering
companies can in fact thrive if they
are prepared to rethink the way
they do business. Being best at what
you do has never been enough.
Being best at something different —
over and over — is key to flourishing
over generations.
The author is professor of Manage-
ment at IMD Business School in
Switzerland. The author contribut-
ed this article to China Watch, a
think tank powered by China Daily.
The views do not necessarily reflect
those of China Daily.
ED RATCLIFFE
HOWARD YU
Through five
principles —
including
“leveraging
seismic shifts” and
“experimenting
to gain evidence”
— pioneering
companies can in
fact thrive if they
are prepared to
rethink the way
they do business.
SHI YU / CHINA DAILY
Who’ll bet on Brexit battered BritainWill the UK lose its attractiveness to Chinese investors when it leaves the EU?
At the time of writing, it
remains unclear whether
the United Kingdom will
leave the European
Union with no deal, a Norwegian
deal, a Canadian deal, another deal,
or whether it will even leave at all.
Given this uncertainty, there are
understandable concerns about the
impact Brexit will have on invest-
ment into the UK, including invest-
ment from China. The UK remains
one of the largest recipients of Chi-
nese investment globally, and the
largest in Europe.
However, the story so far con-
cerning Chinese investment may
provide some encouragement. The
specter of Brexit does not seem to
have spooked Chinese investors.
Chinese investment into the UK
more than doubled to over $20 bil-
lion from 2016 to 2017, and business
interest and real estate investment
enquiries have continued to rise
through 2018.
The investment of personal for-
tunes into UK residential real estate
has made headlines, but there have
been plenty of significant invest-
ments into global giants such as
Barclays and BP and more domes-
tic-oriented businesses such as Piz-
za Express and House of Fraser.
Unlike the investments of foreign
manufacturers in the United King-
dom such as Nissan or Airbus that
rely on “just-in-time” frictionless
trade, the rationale behind many of
the Chinese investments in the UK
appears not to have been directly
related to EU membership.
Outside of the worst-case disaster
scenarios, the attractiveness of Lon-
don-listed equities for Chinese
investors may not change drastical-
ly. In fact, the sliding sterling has
resulted in some stocks rising, and
while some London-listed compa-
nies will be impacted by restricted
access to the EU Single Market,
many of the FTSE100 companies
draw their income from diverse
international sources.
The reputation of the London
Stock Exchange as being well-regu-
lated, especially for protecting
minority investors, is indicative of
the broader suitability of the UK as
an investment destination — rule of
law, pools of professional expertise
and an educated population more
broadly, and overall ease of doing
business. Chinese investors have
capitalized on this with continued
investment in R&D and other pro-
curement from the UK.
In any case, the City of London
will be seeking to maintain its posi-
tion as the pre-eminent interna-
tional financial center — a prospect
that may be unshaken, if not actual-
ly supported, by some Brexit sce-
narios.
However, it is evident that unless
the UK can guarantee frictionless
trade with the EU, investment
opportunities in businesses that
rely on “just-in-time” supply chains
or unfettered Single Market access
will be less attractive. However, the
UK’s relationship with the EU itself
may not be the most important var-
iable. Other factors — the conse-
quences of Brexit for the economy,
consumer confidence and foreign
policy — could have a greater
impact on the opportunities for
Chinese investment and UK-China
economic relations more generally.
The success and attractiveness of
domestic-oriented investments, as
well as the prospects for emergent
Chinese consumer brands such as
Xiaomi (emergent in the UK, at
least), will rely on the health of the
UK economy and UK consumer
spending power, which are not
guaranteed in the more negative
Brexit scenarios.
While a “Hard Brexit” would be
disruptive, it may open a window of
opportunity for foreign investors.
If the UK economy takes a hit,
a combination of lowered
asset prices and a weak
currency could be inter-
esting for Chinese inves-
tors with a longer-term
view.
Conversely, a deal that
gives businesses certainty and
opportunity could see Brexit’s
potential negative impacts curbed,
and investors who were holding off
due to uncertainty may have the
confidence to move forward.
There are wider forces at work,
too, which could impact on Chinese
investment to the UK post-Brexit.
As Britain goes it alone, it may find
itself choosing, or being pressured,
into much closer trade relations
with the United States. Given the
current US-China trade tensions, it
is possible that Washington may
seek to extend its own China con-
tainment policy through the UK’s
trade policy. In this scenario, things
may become very difficult indeed.
Another challenge that risks
being overlooked is that coming
from China itself, as companies are
incentivized and encouraged to
keep their cash at home. If this situ-
ation is exacerbated or Chinese
companies are encouraged to
engage more heavily in Belt and
Road Initiative projects, the UK will
need to find other ways to increase
its attractiveness.
Whatever the shape of Brexit, it is
highly unlikely that UK companies
will abandon their positive senti-
ment toward China. The UK gov-
ernment will likely follow suit.
However, although the UK should
retain its traditional suitability for
foreign investment, the health of
the UK domestic economy could be
the main variable based on the sto-
ry of Chinese investors in the UK so
far.
The author is head of Research and
Advisory for Asia House, a London-
based consultancy. The author con-
tributed this article to China
Watch, a think tank powered
by China Daily. The views do
not necessarily reflect those of
China Daily.
LI MIN /
CHINA DAILY